Burundi - Agricultural Services Sector Project

Document of The World Bank FOR OFFICIAL USE ONLY Repot No. 7557-BU STAFF APPRAISAL REPORT BURUNDI AGRICULTURAL SERVICES SECTOR PROJECT APRIL 26, 1989 Agriculture Operations Division South-Central and Indian Ocean Department Africa Region Tlhis doeument has a rescted disbudon and may be used by reciients only in the perfomance of their offic6l duties Its contents may not othewse be disclosed witbout World Bnk at on  CURRENCY EQUIVALENTS Currency Unit - Burundi Franc (FBu) US $1.00 FBu 155 FBu 100 8 US $ 0.645 WEIGHTS AND MEASURES Metric British/US Equivalents 1 meter (m) - 3.28 feet (ft.) . cubic meter (m3) 35.3 cubic feet 1 hectare (ha) - 100 ares - 2.47 acres 1 kilometer (km) 8 0.624 mile 1 square kilometer (km2) 0.386 square mile (sq. m.) 1 kilogram (kg) - 2.20 pounds (lb.) 1 liter (1) - 0.26 U.S. gallon (gal.) 0.22 Imperial gallon (imp. gal) 1 metric ton (m t) = 2,204 pounds (lb.) GLOSSARY OF ABBREVIATIONS BCC Burundi Coffee Company CICK - Centre International du Credit Mutuel COOPEC - Credit and Savings Cooperatives DGPA Direction Generale de la Planification Agricole IDA X International Development Association ISABU National Research Institute/Institut des Sciences Agronomiques du Burundi GOB Government of Burundi FACAGRO - Faculty of Agronomy MIDTE Ministry of Land Tenure Development, Tourism and Environment MOAL - Ministry of Agriculture and Livestock MRDH = Ministry of Rural Development and Handicraft RDC 8 Regional Development Company GOVERNMENT OF BURUNDI FISCAL YEAR January 1 to December 31  FOR OMCIAL USE ONLY BURUNDI AGRICULTURAL SERVICES SECTOR PROJECT STAFF APPRAISAL REPORT Table of Contents Credit and Project Summary.......................................... i-iii I. BACKGROUND A. Project Background... 1 D. Economic and Agricultural Settingt....... 2 C. Sector In st l t u t i o n s 4 D. Sector Performance...ro... m a nc...e... ............... 6 E. Sector Financial Issues.. 8 F. Sector Strategy .................., 10 II. IDA INVOLVEMENT IN THE AGRICULTURAL SECTOR A. Previous and Ongoing Bank Group Involvement............. 11 B. Performance of Ngozi III and Kirimiro Projects......... 12 III. THE GOVERNMENT'S AGRICULTURAL SECTOR POLICY A. General Description....................... 14 B. The Policy Component.... ... ......... ............ 16 IV. THE PROJECT A. Project Objectives .................................... 21 B. General Description ................................... 22 C. Description of Project Components ..................... 23 D. Project Costs ......................................... 31 S. Financing ........................ 33 F . Procurement . . . . . . . . . . . . . . ... ... 34 G. Dibreet ..................36 H. Accounts and Audits ............................ ....... 37 I. Environmental Impact ...... ..................... 37 V. PROJECT IMPLEMENTATION A. Organization and Management..........................*. 38 B. Programming, Budgeting, Monitoring and Evaluation ..... 41 This report is based on findings of an IDA mission which visited Burundi in December 1987 comprising Messrs. Jean-Francois Barras, Ousmane Sissoko, Ivor Serejski, Lorenz Pohlmeier (Bank), Ms. Bernadette Guyon-Benoite and M. Jean Besson, Consultants. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  VI. BENEFITS, JUSTIFICATION AND RISKS A. MOAL Strengthening and RDC Reorganization ............. 43 B. Cooperative Development Program-. .................... 44 C. Economic Analysis.... ...... ... ..... ......... .. 44 D. Beneficiaries ..... ....... o4*.................... 45 E. Risks*** .... ............ o.o................ ......... 46 VII. AGREEMENTS REACHED AND RECOMMENDATION A. Agreements Reached at Negotiations ................... 47 B. Conditions of Effectiveness ........................... 48 C. Conditions of First Tranche Release ....... ...... 48 D. Conditions of Second Tranche Release.................. 49 E. Conditions of Disbursement .................. ........... 49 TABLES IN MAIN TEXT Table 1. Price Contingencies ..... .......................... 31 Table 2. Project Cost Summary ................. . ............... * 32 Table 3. Financing Plan....................... .. ........ 33 Table 4. Procurement Table..o. ..... .... . ... ....... 34 SUPPORTING ANNEXES, CHARTS AND MAPS Annexes Annex 1 - Project Area................... .. ............. ..... 51 Annex 2 - COOPEC.......oooo................. *es .............. 52 Annex 3, Appendix 1 - Costs of Project Components ............. 54 Appendix 2 - Sumary Accounts per Year ............... 55 Appendix 3 - Financing Plan by Project Components .... 56 Annex 4, Appendix 1 - Civil works, vehicles and equipment ..... 57 Appendix 2 -Procurement Method ...................... 58 Appendix 3 -Technical Assistance..** ..... 59 Appendix 4 - Disbursement Tab1el e..o...... 60 Appendix 5 - Estimated Schedule of IDA Disbursements. 61 Annex 5 Appendix 1 - Imports of Agricultural Inputsu....t.... 62 Appendix 2 - Salary Adjustment Kirimiroi....... ooooe 63 Appendix 3 - Salary Adjustment Buyenzien........*.... 64 Appendix 4 - Operating Costs of Agricultural Services 65 Annex 6 - Implementation Schedule .............. o................ 68 Annex 7 - Economic Analysis ..... .0 ... ... .................... . 70 Annex 8, Appendix 1 - Project Impact on Public Expenditures ... 74 Appendix 2 - Government Cash Flow ................... . 75 Annex 9 - Program - Budgets.....***.. ......................... 76 Annex 10 - Selected Data and Documents available in the Project Vile .................................................... 77  CHARTS 1. MOAL Organization Chart..... .7.8......*.. ........ *........ . 78 2. Buyenzi RDC Organization Chart............................. 79 3. Kirimiro RDC Organization Chart............................ 80 4. Ministry of Rural Development and Handicraft............... 81 5. ISABU Organization Chart.................................... 82 MAP IBRD 20866 - Project Area  BURUNDI AGRICULTURAL SERVICES SECTOR PROJECT Credit and Prolect Summary Borrowert Republic of Burundi Beneficiaries: Farmers in the Ngozi, Kayanza, Gitega, Muramvya, and Karuzi Provinces. Savings and Credit Cooperatives, Buyensi and Kirimiro RDCs and the Ministries of Agriculture and Livestock (MOAL), and of Rural Development and Handicraft (MRDH). Amount: SDR 25.1 million (US$ 33.1 million equivalent) of which SDR 7.04 million (US$9.3 million) of quick disbursing funds. Terms: Standard IDA, with 40 years maturity Proiect Description: The project objectives are to: (i) develop MOAL's analytical and long term programming and budgeting capability, and sector management capacity; (ii) design and establish a national extension system based on regular continuous training and two way link with research, capable of responding to farmers' needs and constraints, and of developing technologies adapted to the various ecological and farming systems; (iii) Improve efficiency while reducing the financial costs of agricultural services through reorganization of Buyenzi and Kirimiro RDCs; and (iv) promote sustainable agricultural input delivery, food crop marketing and agricultural credit systems through support to the national agricultural input policy and promotion of the private sector and cooperatives. The project would be implemented over a five-year period and would consist of a hybrid operation composed of a policy component and an investment component. The policy component would focus on: (a) reforming the agricultural input policy; (b) reorganization of Buyenzi and Kirimiro RDCs; (c) reforming the salary structure of MOAL's staff. The investment component would comprise s (a) Strengthening of MOAt's Central Services (i) strengthening of MOAt's Planning Directorate; (ii) creation of a Financial and Administrative Unit, and, (iii) Strengthening of MOAL'. General Directorate for Extension; (b) StrenRtheninR of aaricultural research through: (i) strengthening  - ii - of the phytosanitary control service in ISABU; (ii) support to a National Fertilizer Research Program; (iil) preparation of reorganization of agricultural research; (c) Reorxanization and strenathenina of rexional agricultural services through: (i) reorganization and strengthening of extension services in 5 provinces under Buyenzi and Kirimiro RDCs; (ii) carrying out, with the support of ISAdU a program of adaptive and on- farm research in the five provinces; (iii) carrying out a staff training program; (iv) strengthening of livestock services in Buyenzi and Kirimiro; (v) support to land protection and development; (d) Manatement of RDC Reorganization through (i) strengthening of RDC's promotion activities; (ii) monitoring and evaluation; (e) Promotion of rural youth emologment in the provinces of Ngozi and Muramvya; (f) Preparation of pilot communal development plans in the provinces of Ngozi and Muramvya; (g) Strenathenint of the cooperative movement through: (i) support to MRDH's Cooperative Department in the promotion of an autonomous cooperative movement; (ii) support to Savings and Credit Cooperatives (COOPEC). Benefits and Risks: The project is expected to Improve the living conditions, the nutritional situation in five provinces inhabited by about 35X of Burundi's population through a reorientation of extension and adaptive research towards farLers' needs. The needs of the growing number of small marginal farms, young farmers (school leavers) and of women farmers would receive special attention. The reorganization of Government's interventions in the agricultural sector would improve the cost-effectiveness of public expenditures, improve the quality of sub-sectoral programs and create favorable conditions for a growing involvement of the pri'iate sector and cooperatives in commercial activities. The rate of return on fertilizer promotion, rice development and pest control has been estimated at 19X. The project's success would depend on the continuity of the GOB's nolitical commitment toward the agricultural sector as part of its policy of reconciliation and national unity.  - iii - Estimated Proiect Costs Local Foreign Total --US$ million-------- MOAL Central Services 2.6 5.1 7.7 Regional Agricultural Services Kirimiro RDC 2.1 3.2 5.3 Buyenzi RDC 1.4 2.7 4.1 Rural Youth program 0.3 0.6 0.9 Communal Development 0.3 0.6 0.9 Research 1.5 2.1 3.6 Cooperative Development 0.9 2.5 3.4 Support to Adjustment - 9.3 9.3 Total Baseline Costs 9.2 26.0 35.2 Physical Contingencies 0.7 1.2 1.9 Price Contingencies 0.9 2.0 2.9 TOTAL PROJECT COSTS 11 10.7 29.3 40.0 Financing Plan Local Foreign Total ---------US$ million ----------- Government 2/ 4.2 1.1 5.4 IDA 6.4 26.7 33.1 FACIEDF - 0.4 0.4 Belgium Assistance - 0.2 0.8 COOPEC 0.1 0.2 0.3 l 1/ Include direct taxes of about US$1.2 million 21 Include the US$1.2 million in taxes Estimated Disbursements (USS million) IDA Fiscal Year 1990 1991 1992 1993 1994 1995 1996 Annual 2.8 7.3 8.7 5.5 4.5 2.6 1.7 Cumulative 2.8 10.1 18.8 24.3 28.8 31.5 33.1 Rate of Return: 19% (on 70 percent of total project costs).  BURUINDI AGRICULTURAL SERVICES SECTOR PROJECT STAFF APPRAISAL REPORT I. BACKGROUND A. Prolect Backaround 1.01 The proposed project would be the first operation in the agricultural sector, of a new generation of IDA interventions aimed at improving agricultural services nationwide while alleviating the financial burden on Government in line with the structural adjustment program. The project would strengthen the Ministry of Agriculture and Livestock and the Ministry of Rural Development and Handicraft, reorganize two Regional Development Companies (RDC) previously involved in the implementation of IDA-financed rural integrated projects and support the adjustment of agricultural input and agricultural staff salary policies. 1.02 The design of this project has contributed to mold the evolution of the agricultural sector dialogue between the Government of Burundi and IDA. When identified by IDA in 1982, the project's initial concept of national services strengthening was not accepted by the GOB, who was at that time ! strongly attached to its area-based Regional Companies strategy whose cost and performances were at that time insufficiently assessed. Since then, much progress has been made. Faced with serious imbalances, in late 1984, the Government requested that the Bank and the IMF assist with the preparation of an economic reform program aimed at restoring financial equilibrium in the short-term, while initiating medium-and long term structural change. A number of measures of the first (1986) and second (1988) structural adjustment credits concerned the agricultural sector. The principles underlying these measures have been further developed by the new Government's Sector Policy Paper which addresses key sectoral issues and constitutes the framework for adjustment of the agricultural sector in line with the overall program. During a post-appraisal mission in May 1988, the proposed operation was transformed into a hybrid consisting of (i) a policy component which would support the reform of the agricultural sector input policy, a reorganization of the Buyenzi and Kirimiro RDCs, and a reform of agricultural staff salary structure; and (ii) an investment component focusing on strengthening sectoral resource management capability and agricultural research, and reorganizing agricultural services at central and provincial levels. Investments and further policy measures in the coffee sub-sector will be included in a subsequent project, currently under preparation. Project processing was interrupted by the ethnic based social violence which erupted in August 1988 in the north of the country. It resumed after IDA was satisfied that Government was taking the necessary steps to bring the situation back to normal and reaffirmed its determination to continue and expand upon its policies of reconciliation to overcome the country's ethnic divisions. To assist Government's efforts, a special program to promote rural youth  - 2 - employment and involve the communes in rural development has been added to the project. B. Economic and Agricultural Setting 1.03 Burundi is a small, landlocked country in East-Central Africa. Its GNP per capita, estimated at about US$250 (1987), ranks among the lowest in the continent. With a population of about 5 million, Burundi has the second highest population density in the world estimated at 170 persons per square kilometer. Burundi is relatively well endowed for agriculture; although it has soils of mediocre fertility, the climate varies broadly among the country's natural regions (IBRD Map 20008) and permits year round cropping. Although the soils of Burundi are among the poorest in Africa in terms of acidity and nutrient content, they support one of the most intensive and productive agriculture in the African continent. Population growth (3 percent per annum projected for the 1985-2000 period) is high. Despite the high demographic pressure on already constrained land, migration to the urban centers has been limited with urban population accounting for only 5 percent of total population. The country has limited natural resources. Identified minerals include nickel, phosphate, petroleum, vanadium, some fluvial gold and calcium, but it is not clear whether exploitation is economically justified. 1.04 Agriculture is Burundi's most important economic activity; it accounts for about 50 percent of GDP and more than 90 percent of the population live in rural areas, depending directly on agriculture for their livelihood, on average farm size of about only 0.7 ha. of usabl' land. The most important export crop in this largely subsistence-dominated sector is coffee, which on average accounts for more than 75 percent of exports earnings. Burundi is one of the few African countries which is self- sufficient in food (at least for the most popular staples). The secondary sector is still small, accounting for about 13 percent of GDP and 10 percent of exports. The private sector, while small in terms of total fixed investments (15 percent) plays a major role in agricultural production and trade. The public sector dominates manufacturing (including coffee processing), energy and infrastructure, with the parastatal sector contributing half of formal employment. Landlocked Burundi is vulnerable to transportation conditions in neighboring countries. Although progress has been made in recent years, transportation costs to and from the Indian Ocean remain very high and account for 60 percent of the border price of fertilizers. 1.05 Average annual production of major food crops is estimated at 1,200,000 tons of bananas, 280,000 tons of beans, 470,000 tons of cassava, 512,000 tons of sweet potatoes, 150,000 tons of maize and 53,000 tons of sorghum and millet. Rice was introduced relatively recently and production has climbed steadily to a current level of 20,000 tons of paddy per year. So far, food production has kept up with population growth, with occasional seasonal and regional protein-calorie intake deficiencies. The main cash crops are coffee, tea, cotton, palm oil and tobacco. Coffee is most important for the national economy and although coffee trees cover only 5 to 10 percent of individual holdings where coffee is grown, it is the principal source of cash income for many farmers. Although annual coffee production fluctuates, the underlying production trend is rising, from an average of 13,215 tons in  the 1963-1967 period to 29,743 tons in the 1983-87 period. Tea is also becoming important with production rising to 4,500 tons in 1987 following improvements in processing and quality, factors which have resulted in top prices being fetched at international auctions. After declining to 5,000 tons in the early 80's, cotton production was about 8,000 tons in 1987. The animal population is estimated at about 600,000 Ankole cattle and 1,200,000 small ruminants. 1.06 Farming practices are traditional. Small quantities of manure and compost are applied and demand for fertilizer is limited (4,600 tons in 1986) and concerns mainly cash crops (3,200 tons); however there is strong demand for fertilizer on food crops in the Kirimiro region where application of low rates of DAP (120kg/ha), with traditional cultivation practices, have shown a very good response on very acid and exhausted soils. Improved seeds have been introduced in some areas although not in a systematic and well organized manner but, their poor quality has generated a weak response from farmers. Multicropping is the rule, with intercropping frequently practiced particularly in high intensity farming areas. Farm labor is provided by family members, mostly by women. 1.07 Marketing of food crops fluctuates widely but is generally limited to an estimated 10 to 15 percent leading to a low degree of monetization of the rural population. So far, Government has refrained from direct intervention in food crop pricing and has renounced (in the SAL context) to intervene in their marketing, with the exception of import-substitution food crops (wheat, rice and palm oil). Fooderop marketing is in the hands of a few traders, mostly foreigners, located in secondary towns and Bujumbura. They are, usually, also involved in marketing of parchment coffee and consumer goods. A few cooperatives are also involved in rural trade but poor management reduce their competitiveness with the private traders to even out extreme price fluctuations. 1.08 Marketing of cash crops is regulated by Government and carried out by private traders and parastatals. Most of the coffee cherries are processed In hand pulping centers set up and maintained by the 'Office des Cafes du Burundi' (OCIBU), and the parchment coffee is sold by farmers directly to private traders licensed by OCIBU. A growing percentage (from 4 percent in 1978 to 30 percent in 1988) of coffee is processed in coffee washing stations. Based on the forecast FOB export price, a coffee pricing structure, "Echelle mobile", establishes the various margins to be paid from the proceeds of coffee sales to the producers, the traders, the Burundi Coffee Company (BCC), the Regional Development Companies (RDC), and OCIBU. The price paid to the producers is fixed each year for the next season and is not adjusted according to the final export price. Reform of the coffee pricing structure was a key condition of the structural adjustment program. Studies are now underway and reforms will be implemented in the context of the coffee project currently under preparation. 1.09 Institutional agricultural credit is practically non-existent. The beneficiaries of credit granted by commercial banks are predominantly living in urban areas. In rural areas, credit represents only 13 percent of total savings by Savings and Credit Cooperatives (COOPEC). This illustrates the scarcity of agricultural credit opportunities resulting from the limited use of cash inputs.  C. Sector Institutiona 1.10 The Ministgr of Agriculture and Livestock (MOAL) (chart 1) is in charge of policy formulation, direction and coordination of all activities in the sector. Since a reorganization in January 1989, four General Directorates report directly to the Minister: Plan-ning, Agriculture, Livestock and Extension which is a new Directorate. MOAL is also the umbrella organization for Regional Development Companies (RDCs) and several parastatals. 1.11 The Director General for Agricultural Planning (DGPA) is responsible for three departments: (i) Studies and Programming covering sectoral planning, project identification, preparation and supervision of sectoral and feasibility studies; (ii) Monitoritv and Evaluation and Management Assistance covering pro'ect supervision, technical and budgetary control; socio-economic evaluation of MOAL's interventions, management assistance to projects and parastatals, coordination of financial audits; and (iv) Agricultural Education and Training. covering the supervision of agriculture vocational schools. Agricultural statistics are collected by SNES (Service National d'Etudes et de Statistiques) In the Ministry of Planning, through regional surveys on agriculture production and farm structure. 1.12 The Director General for Agriculture is now responsible for three departments: (i) Crop production covering food and export crop promotion and in charge of production and distribution of seed and planting material; (ii) Land Improvement and Fertilization covering land improvement and fertilization and coordination of fertilizer supply; (iii) Crop protection covering pest and disease control. Rural works, water and Forestry, Land Tenure and Rural Cadaster department are now under the new Ministry of Land Developmant, Tourism and Environment (MLDTE). 1.13 The Director General of Livestock is responsible for three departments: (i) Animal Production: (ii) Animal Health: and (iii) the Veterlnary Laboratorv. 1.14 The new Director General for Extension (DGV) created as a result of project preparation, supervises Agricultural projects and RDCs and he is responsible for two departments: (i) Extension in charge of development education, training and supervision of extension staff; and community development; and (ii) Personnel and Budget in charge of budget preparation and execution, and direct management of extension staff. 1.15 Agriculzural services are regionalized and each department is represented separately at the provincial and commune levels. The head of the extension service in each province has the official title of Provincial Coordinator for Agriculture and Livestock, he has overall responsibility for the execution of MOAL's program in the province and reports directly to the Director General for Extension. MOAL's DGPA is receiving technical assistance under the ongoing Third Technical Assistance Project (Cr. 1456-BU) and under a technical assistance project financed by German Aid.  - 5 - 1.16 The following parastatel institutions, with the exception of BCC, are under the responsibility of MOAL. (a) OCIBU (Office des Cafes du Burundi) is a financially autonomous parastatal institution established in 1964. OCIBU was originally intended to be responsible for the production, quality control, conditioning, marketing control, and promotion of all industrial crops. In practice however, it deals only with coffee and is responsible for extension, input supply, maintenance of hand pulpers and operation of two modern coffee hulling factories. (b) ISABU (Institut des Sciences Agronomiques du Burundi) carries out agriculture and livestock research, through 4 departments staffed by 45 local researchers and 40 expatriates. ISABU which was until recently mainly financed and assisted by Belgian Aid is developing cooperation with other bilateral donors and the International Agricultural Research Centers. (c) BCC (Burundi Coffee Company) was created in 1975 and restructured in 1980. Owned by the Government, the Central Bank and OCIBU, BCC is under the responsibility of the Ministry of Commerce and Industry and handles all coffee exports. It is headed by a general director with two assistants. The major problems facing BCC are the lack of international marketing expertise of its staff, inadequate storage facilities, and an unreliable transportation system for coffee exports. These problems are addressed through conditionalities under the SAC II Credit. (d) Reg ional Development Companies (RDC). RDCs are autonomous institutions with responsibility for broad integrated rural development in their respective areas of operation. Although fully owned by the Government, the decree establishing them allows for private ownership up to 40 percent, and requires them to be managed as commercial operations. Thirteen RDCs have been created to date, although only four of the integrated rural development type with important commercial activities are operational at present. 1.17 The Ministry of Rural Development and Handicraft (MRDH) was separated from the former Ministry of Agriculture, Livestock and Rural Development in 1979 and was reorganized again in December 1988. It consists now of two General Directorates: (i) Handicraft, Cooperatives and Rural Housing organized in three departments; and (ii) Rural Water Supply and Enerrv with two departments and an Administrative and Financial Service. 1.18 The Cooperative Movement. Since 1976, official support has been given to the dev7elopment of cooperatives through the National Development Plans; assistance was also provided from 1978 to 1986 through a UNDP financed project implemented by ILO; various bilateral agencies and NGOs are also supporting cooperatives. With some 250 cooperatives and many pre-cooperative or informal groups, the cooperative movement is active in rural areas across the country. Most of these cooperatives are involved in procurement and sale  of consumer goods and in agricultural product marketing. In the past, however, Government considered cooperatives as an instrument for the implementation of its development policy, as a result, cooperatives were set up according to governmental criteria and representatives of local authorities and civil servants hLlve often a dominant role in cooperative management and operations. Furthermore, cooperative operations and transactions were subject until recently to the regulations of an inadequate cooperative legislation reflecting the paternalistic concept of the previous Government toward cooperatives. This inadequate concept together with inefficient cooperative support services. led to a situation where many cooperatives are not viable. 1.19 Savings and Credit Cooperatives (COOPEC) have been successfully promoted through a national project supported by French Bilateral Assistance and the 'Centre International du Credit Mutuel" (CICM). Some 56 COOPECs collect savings from 67,000 members and have started credit operations on a limited scale. Efficient support and control services are provided by a Central Office in Gitega assisted by CICM under an agreement with the Government. Details on COOPECS are provided in Annex 2. 1.20 The Ministry of Land Development, Tourism and Environment has been created in October 1988. Among its attribution are Water and Forestry, Rural Works and Land Tenure, and Rural Cadaster which were previously under MOAL authority. 1.21 Local Administration. Burundi is divided into fifteen provinces (IBRD Map 20006), each of which is divided into "communes" (114 in all) which are further subdivided into zones and 2,464 "collines", the smallest administrative units. The Ministry of the Interior has principal responsibility for local administration. Through "gouverneurs" at the provincial level, it coordinates the technical ministries units located in the province. At the communal level, the commune administrator, manages a communal budget financed with local and national resources, and assist in the settlement of social conflicts, most of them being related to land tenure disputes. He is assisted by an advisory committee staffed by civil servants natives from or working in the commune. The elected council planned in the communal reform has never been established, as a result the participation of the population in communal affairs is minimal. The involvement of the Communal Administrator in development activities is too often limited to an enforcement role (credit recovery, "travaux communautaires"). The project would help the Government to find ways of improving the development impact of local administration through a pilot action in Ngozi and Muramvya Provinces. D. Sector Performance 1.22 Overall performance of the agricultural sector was good in the 1970's, and in particular between 1978 and 1981, when GDP grew at an average annual rate of 5.1 percent. Subsequently, due to a sharp deterioration in its terms of trade, expansionary fiscal and monetary policies and adverse Burundi's climatic conditions, the economic situation deteriorated significantly with annual real GDP growth declining to less than 1.0 percent during 1982-84. In 1984, the external current account deficit (excluding official transfers) reached a record high of 16 percent GDP, and the overall  fiscal deficit on a co-mitment basis rose to 12 percent of GDP. The terms of trade sharp deterioration between 1978 and 1981 was due mainly to the decline of international coffee prices and increased import prices, particularly oil. Corrective measures including import restrictions affected imports of capital and intermediary goods, including for agriculture. In addition, the effect on the budget from falling Government revenues (resulting from lower value coffee exports) restricted the Government's investment program and increased the proportion financed through foreign borrowings or grants. In 1984, a serious drought led to a reduction of agricultural output by about 12 percent, but production estimates indicate a return to normal levels in 1985, 1986 and 1987. With the support of IDA and the IMF, the Government embarked in 1985 in the preparetion of a comprehensive economic reform program. The econowy rebounded somewhat following the recovery of agriculture production to pre- drought levels. Real GDP growth reached 7.4 percent; the current account deficit declined to 9.3 percent of GDP; and the overall fiscal deficit on a commitment basis fell to 7.6 percent of GDP. 1.23 Despite a period of marked decline in world coffee prices, developments in late 1986 and 1987 were largely positive. Non-traditional exports grew by about 30 percent a year in real terms, while import growth was contained. In 1987 world prices of coffee declined by 46 percent to their lowest level in a decade, and coffee export earnings contracted by US$ 47 million. As a result the current account deficit (excluding official transfers) increased to the equivalent of 15 percent of GDP and the overall balance of payments deficit was about US$ 10 million. Economic performance over the next five years will depend on: (i) timely implementation of the adjustment program; (ii) the responsiveness of the private sector to new incentives and the economic environment; (iii) evolution of world prices for Burundi's exports, in particular coffee; and (iv) the availability of external financing on concessional terms. The PFP under preparation estimates that the financing gap would grow from US$ 28 million in 1990, to US$ 50 million in 1991, and US$ 62 million in 1992. To help finance this gap, IDA intends to use a series of vehicles supporting appropriate policy changes. They include macro-economic adjustment operation as well as hy'rid operations. In the agricultural sector, the proposed operation is such a hybrid. 1.24 Statistical surveys conducted by the National Service for Studies and Statistics (SNES) in 1974, 1982, 1985 in the Ngozi area, the most densely populated region in Burundi, show that food producticn has been able to keep pace with population growth. The credit for this situation is due mostly to the know-how of Burundian farmers, both men and women, and their ability to adjust farming systems to a changing environment. However, while Burundi may have maintained an average caloric availability of 2200 calories per day, specific nutritional requirements and family-level food security have not been ensured: (i) while protein and caloric needs have been covered on average, lipid coverage remains highly deficient (46 percent); (ii) recent nutrition surveys show that protein-calorie malnutrition among children less than five years old is a serious problem; and (iii) while farming production systems are well-adapted to reducing the risk of periodic food shortage, the low level of monetization and undeveloped marketing systems are potential constraints to maintaining food security in times of adverse climatic conditions. 1.25 Agricultural services are largely ineffective, generally employing inadequate research and extension methods. Until recently, agricultural  - 8 - research has been guided more by academic requisites than by the needs of Burundi's agriculture. However, the new policy of the National Agricultural Research Institute (ISABU) is to build upon some successful experiences to reorganize agricultural research around Regional Multidisciplinary ResearcL Workshops working directly with farmers, in addition to multi-disciplinary on- station research programs for priority commodities (coffee, maize, milk). This is expected to facilitate the dialogue between extension and research which has been often limited to a discussion of annual/seasonal work programs. Extension has suffered from the lack of relevant technical packages, specially for foodcrops and, as a result, the main role of extension services is too often limited to ensure compliance with Government decreed national objectives; a top-down approach is still prevailing. In addition, extension efforts are diluted by heavy burdens of unrelated non-extension duties. Staff numbers are adequate but their educational background is often insufficient (many have barely a primary school certificate). Due to budget constrai!ts, facilities with respect to staff accommodation and mobility are almost *Ion- existent and effective farmer contact difficult. Extension workers wotking outside projects do not receive systematic in-service training to keep them abreast of technological advances or to improve their communication skills. 1.26 An IDA Study executed in 1987 to assess fertilizer usage and potential for local production concluded that the agronomic effectiveness of chemical fertilization is limited by several factors, among which: (i) the lack of fertilizer oriented agronomic research, with possible misuses of nutrients in fertilizer formulations not tailored to the specific soil and crop conditions; and (ii) the severe acidity and aluminum toxicity of large part of Burundian soils which block and retrograde fertilizer nutrients before they are assimilat d by the plant. Because of financing problems and cumbersome procurement procedures, effective demand is not entirely met by the current import and distribution system which is in the hands of parastatals (RDCs, Tea and Cotton Companies). Subsidized selling prices, unequal fiscal status and insufficient technical experience prevent an active involvement of the private sector in the marketing of fertilizers. These issues would be addressed by the proposed operation through a fertilizer research program on the technical side and a reform of the input pricing and fiscal regime, on the policy side. E. Sector Financial Issues 1.27 The main financial issues in the agricultural sector, identified by an IDA study carried out in 1987, are: (a) the fragmentation of budgetary procedures; (b) weak budgetary control on parastatal companies; and (c) questionable sustainability of public expenditures. 1.28 The sector's share of budget resources is provided through different channels: (i) MOAL's ordinary budget covers the salaries and office operating costs of central services and of provincial services not covered by projects, and a participation to RDC's operating budgets (3 percent of the GOB operating budget); (ii) the transportation costs of MOAL are under the Ministry of Transportation and are almost non-existent; (iii) government counterpart funding of externally financed agricultural projects, including operating costs, are under the Investment Budget; (iv) the coffee pricing schedule  - 9 - ("echelle mobile") supports investments in the coffee sector, covers the costs of coffee inputs, the operating costs of OCIBU and BCC, and financed for a few years the operating costs of Buyenzi RDC which were not financed under the IDA-financed Ngozi III project; and (v) support to cooperatives and rural infrastructure is budgeted under the Ministry of Rural Development and Handicraft. 1.29 The ordinary budget allocation to the agricultural sector has slightly increased from FBu 525 (US$ 4.4) million in 1984 to FBu 665 (US$ 4.30) million in 1988, which is only 3 percent of the total ordinary budget. In the 1988 ordinary budget for the agricultural sector, salary coets amount to 58 percent of total ordinary budget, a 3 percent annual increase over the past four years; the staff under civil service status amounts to 34 percent and personnel under contract with the Government 24 percent. Research receives 17 percent, agriculture schools 17 percent, and the remaining 8 percent is shared among projects, office operation and veterinary products. The investment budget for the sector has increased from FBu 542 million in 1984 to FBu 1,127 million in 1988, which is about 30 percent of the total public investment program. Within this, the Government contribution (investment and operating costs) to externally financed agricultural projects represents 70 percent, and the national program for expansion and regeneration of coffee plantations 20 percent. 1.30 MOAL's DGPA has prepared a preliminary Public Expenditure Program for the 1987-1989 period including only on-going or securely financed projects. The annual average is FBu 7,900 (US$ 66) million, of which only 15 percent are financed by the ordinary and investment budgets. With area-based multi- component projects and RDCs representing almost 50 percent of the PEP it is difficult to assess the respective share of the agricultural subsectors. This illustrates the still prevalent area-based planning and the lack of sectoral programming and budgeting. A striking example is the coffee sector whose investments are scattered among 7 different projects. 1.31 The lack of sector-wide programming and budgeting leads to inefficient monitoring of public expenditures. MOAL's Planning and Technical Departments have little to say in the definition and enforcement of financial and technical norms. This has resulted in rather generous allocations to parastatal institutions such as OCIBU and RDCs. As an example, the Buyenzi RDC was able to accumulate, in the past, an excessive cash flow through subsidies from the coffee pricing system, while other projects were underfunded. It also results in excessive unit costs as experiences are not systematically analyzed and analyses shared between projects units. 1.32 The dependency of sector financing on external contributions is a major issue. The 15 percent of PEP costs currently financed by GOB through ordinary and investment budgets are not enough to cover operating expenditures of the PEP estimated at 23 percent of total. To lower this level of dependency, the Government long-term financial strategy in the agricultural sector will focus on: (i) progressive transfer of agricultural investments to the private sector; (ii) close monitoring of the cost/benefit ratio of agricultural services, rural development infrastructure and land protection; (iii) concentration of budgetary resources on public service activities (extension, research); and (iv) debudget-ization of commercial activities (input supply, marketing). The proposed project would apply these principles  - 10 - to the reorganization of Buyenzi and Kirimiro RDCs. Successful implementation of agricultural services reform in these two RDCs will lead to a reduction estimated at about 15 percent of the cost of public expenditures for agricultural services covering 5 provinces (para. 6.04). F. Sector Strategy 1.33 Any long-term strategy for agricultural development in Burundi eventually has to deal with three basic issues: how to raise production in the face of increasing land scarcity; how to optimize returns on coffee as the major cash crop and, at the same time, reduce dependence on it as the main export; and how to increase the efficiency of sector institutions in the face of serious financial limitations (a high debt burden, low savingslinvestment rates and limited budgetary resources). 1.34 In the past, Burundian farmers have been able to increase food production in line with population growth by bringing into cultivation previously unused lands, by adapting their farming systems to achieve increasingly higher cropping intensities (i.e., intercropping, double cropping, relay cropping), and by shifting from cereal and legumes to high yielding tuber crops. This has, thus far, enabled the avoidance of using cash inputs on a large scale but it has also meant that crop yields per acre have not notably increased, and nutritional standards have decreased. As the potential for production growth on the past pattern becomes increasingly limited, greater use of cash inputs to achieve crop yield increases is becoming a necessity. Hence (a) far greater attention is needed to develop and propagate adequate technical recommendations through better extension and research; and (b) farmers will increasingly have to produce for the market to enable the purchase of cash inputs. 1.35 Given the limited size of the domestic market, at least in the short to medium term, the main source of cash earnings will be in export commodities (and, to a lesser extent, in import substitution products). The Government has made--and continues to make--a major effort to increase its export earnings from coffee both by expanding production through extensicn, provision of pesticides and tree renewal programs, and by increasing coffee quality through investments in washing stations. On the production side, this effort has been relatively successful as witnessed in increasing production and a progressively larger share of fully-washed coffee in total coffee output. A problem, however, has arisen in that the quality premium for fully-washed coffee on the market could not be realized due to inadequate pxocessing and handling in OCIBU and BCC; these problems are now addressed through conditionality in the Structural Adjustment Credit, and through investments in improved processing and handling. The more general problem, however, is the destabilizing effect of fluctuating coffee prices, especially on the Government budget as the coffee pricing system in Burundi has been applied so as to insulate coffee producers from such fluctuations. These effects can only be mitigated: (a) in the short to medium term by changes in the pricing system so as to achieve more efficient processing and marketing; and (b) in the medium to long term by sharing some of the price fluctuations between producers and Government and by developing alternative exports. The reform of  - 11 - the coffee pricing system would be addressed under a Coffee/Export Crops Project, currently under preparation. 1.36 Finally, increased efficiency of sectoral institutions would be the goal of a series of measures which are part of the Government's Agricultural Sector Policy, which would be supported by the proposed operation. Problems encountered in this area in the implementation of previous and on-going Bank operations have been fourfold. First, the creation and subsequent expansion of RDCs caused confusion as to the role of the central ministries and, to some extent, led to dual services. Second, the vocation of RDCs to promote integrated rural development led them to take on many activities including social services, construction work and subsidized commercial activities. Not only did this prevent the private sector from entering into some of these activities, but the high cost of RDC operation increasingly led to questions of financial sustainability. Third, both extension and research services have been applying a top-down approach, insufficiently taking into account farmer requirements and failing to learn from progressive farmer initiatives. A more participatory attitude would not only result in efficiency gains but would also help to lessen social tensions. Fourth, separate financing of RDC counterpart expenditures through earmarked resources (i.e., the coffee "echelle mobile") led to unaccountability of resource use, difficulties in sectoral investment planning and programming and, in some instances, wasteful allocation of scarce Government resources and a growing level o' subsidies. Basically, the agreements now reached to solve these problems are: (a) returning progressively the service activities' responsibility from the RDCs to the central services, while at the same time reinforcing budget control at the central ministry levels; (b) relinquishing progressively commercial and force account activities (i.e., constructionlopera-tion of washing stations, supply and distribution of inputs) to the private sector and to cooperatives; and (c) to the extent that the private sector would not be able to manage commercial activities, RDCs would retain responsibility but would manage them strictly as a commercial enterprise. These decisions, together with their organizational, financial and administrative implications, would be the framework in which the proposed operation would work. They result from a long evolution process based on experience gained in previous and on-going operations (paras. 2.04-2.14). II. IDA'S INVOLVEMENT IN THE AGRICULTURAL SECTOR A. Previous and Ontoint Bank Group Involvement 2.01 The Bank Group is one of the major sources of development assistance to Burundi. To date, IDA has financed eight agricultural projects, of which four have been completed and four are being Implemented. 2.02 Implementation of the Fisheries Development Project (Cr. 626-BU) was hampered by weak project management coupled with complex project design and its results were disappointing. The First and Second Coffee Improvement Projects (Cr. 147-BU and Cr. 593-BU respectively) succeeded in promoting production of arabica coffee but had limited results for the food crop project  - 12 - components. The First Forestry Project (Cr. 918-BU) was recently completed and a PCR has been finalized; the project has been implemented very well. The Second Forestry Project (Cr. 1620-BU) aims to further develop basic forestry services, promote tree planting by farmers and promote plan.tations supplying fuelwood, poles and timber. The Muyinga Agricultural Development Project (Credit 1857-BU), which was recently declared effective, will strengthen agricultural services and coope!:atives in Muyinga province. 2.03 Technical assistance was provided to DGPA through two IDA financed Technical Assistance Projects (Cr. 917-BU and 1456-BU). Between Septembar 1980 and July 1988 two internationally recruited experts assisted respectively in project identification and preparation and in the setting up of a monitoring and evaluation system for projects under the responsibility of MOAL. In September 1984 a third expert was added to support financial management and accounting. Between June 1980 and July 1987 an expert in agricultural statistics assisted in setting up an agricultural data collection system, and trained statisticians. The main achievements have been the improvement of sectoral planning through the preparation of a Public Expenditure Program for the agricultural sector and the design of a new sectoral accounting plan. The efficiency of technical assistance has been hampered by high turnover of national staff, insufficient coordination with other Bank interventions, and an unclear DGPA mandate over RDCs and OCIBU. Achievements have been, however, substantial in sectoral planning, management assistance and training. B. Performance of Nxozi III and Kirimiro Projects 2.04 The Ngozi III (Cr. 1192-BU) and Kirimiro Projects (Cr. 1165-BU) executed by the Buyenzi and Kirimiro RDC respectively, are still under implementation but are about to be completed. As the lessons learned from their execution form the basis for the proposed project, the experience gained from their implementation warrants a more detailed analysis. 2.05 The first RDCs were established in the early seventies, but it was not until the latter part of the decade, and with the support of IDA, that the Government began to emphasize RDCs as the central vehicle for broad integrated rural development. While the Ngozi I project was exclusively designed to integrate coffee production (PPAR No. 1531 and Impact Evaluation Report No. 3314), the Ngozi II project included a limited fooderop component (PPAR No. 4576). The currently executed projects are very similar in scope and include: improvement of coffee and fooderop production; improvement of coffee quality through the construction and management of coffee washing stations; erosion control; reforestation; swamp development; improvement of livestock; adaptive research; training; monitoring and evaluation. 2.06 Coffee Production. The coffee production program is based on: (a) concentrated extension focus on pest control, mulching and pruning; (b) seedling production for plant renewal and area expansion; and (c) applied coffee research. It has been moderately successful; overall production has increased due to an expansion of area under coffee by 20 percent. However, tree renewal has not proceeded at the same pace as new area planting, as a result of which yields have stagnated at 450 g per tree (750 kg/ha) on  - 13 - average. Applied research results have shown that yields can be increased through replacement of old trees and higher density planting; these results form the basis for an accelerated seedling production program. 2.07 Construction/Management of Washing Stations. RDCs' principal activity so far has been the construction and the management of coffee washing stations. Buyenzi and Kirimiro RDCs have now 37 and 29 washing stations under operation respectively. In 1988, they produce about 9,600 tons of fully washed coffee which represents 30 percent of Burundi's green coffee production. The coffee washing stations are progressively replacing hand pulpers and are well received by the population who benefit from higher prices, reduced labor requirements, and secured cash payments. This successful program would be further expanded under the Coffee/Export Project (para. 1.35). 2.08 Food crop production activities have achieved mixed results. Extension has generally placed less emphasis on food crops than on coffee and has obtained significant results only on fooderop fertilization in Kirimiro and rice production in Buyenzi. Seed production through the RDC managed seed centers is costly and inefficient and has a very limited impact at farmer level. The main reason for this shortcoming is the scarcity of improved seeds with significantly higher performance than the farmer's own seeds. Plant protection extension has suffered from the lack of an effective link between extension and research. 2.09 Input demand and distribution is relatively advanced in Kirimiro, especially for fertilizer. In 1987, two thirds of Kirimiro's farmers used fertilizer (totalling 1200 tons) mainly on beans which represent about 60 percent of the pure stand beans area. Fertilizer is sold by RDC at prices which do not cover transport and marketing costs in Burundi. Yield increases from fertilizer use are above 50 percent or about 420kg/ha and the farmer benefitlcost ratio is about 3sl at present subsidized prices and would be around 2:1 when marketing costs are fully recovered. The storage and distribution function is separated from extension services; no credit is given for seasonal inputs and the cooperative network is used for distribution of about 20 percent of fertilizer. However, there is considerable room for improvements in tightening stock and cost control. Until recently, the Buyenzi RDC did not have a functioning input distribution system: inputs were sold and, partly distributed on credit by the extension service; the demand for fertilizer is low; the existing cooperative network is not used; and an effective system for stock and cost control including credit recovery does not exist. Farmers in Buyenzi (where soil conditions are not conducive to the use of existing fertilizers) buy this 'subsidized' fertilizer and resell it, in Kirimiro where there is suppressed demand, often 60 to 80 % over subsidized price. 2.10 In Buyenzi RDC rice cultivation in swampy bottomlands has been promoted through efficient extension and the attractive paddy price offered by the RDC (25 percent above market price). The area under cultivation has progressed from lOOha to 2,500 ha in 1987 and involves 30,000 farmers or about 20 percent of total. The RDC operates two rice mills financed under separate funding from the Government. However, unrealistic paddy prices combined with high processing costs (25 percent above small private mills) make the RDC's rice non-competitive. As a result, subsidy needs for the 1987 campaign  - 14 - amounted to FBu 13 million. The Government is committed to liberalize the rice market before 1990 and the proposee project would support the privatization of RDC's rice mills. 2.11 The RDCs are also in charge of building and maintaining infrastructure such as forest plantations, erosion control, and rural roads. Over four years, Buyenzi and Kirimiro RDCs have planted 2,400 ha and 5,300 ha of forest respsctively, of which about 50 percent of soil protection plantations on degraded hill crest. One thousand hectares were destroyed during the August 1988 tragic events. About 90 percent of the plantations are owned by the RDCs which are responsible for their management. Erosion control works are done by the population through community works with the RDCs providing planting material for contour hedges. Construction and maintenance of access roads to the washing stations are under RDC's responsibility. In Kirimiro, maintenance works are done by the population, while in Buyenzi they are done on force account. 2.12 Financial Situation. The financial and managerial problems of the RDCs were the subject of an IDA study in 1985. RDCs were created on the assumption that the proceeds from commercial activities would pay for rural development services and infrastructure. This has not been the case so far for two reasons: (i) due to an inadequate coffee pricing system (echelle mobile) the production of fully washed coffee has sometimes been done at a loss for the RDCs while the same pricing system was making profits for OCIBU and BCC; (ii) the scope and magnitude of service activities and rural infrastructure programs were out of proportion with RDCs potential profits. 2.13 The actual presentation of RDCs' annual budgets and accounts is confusing and makes their financial analysis difficult. There is no clear distinction among the three types of RDC activities: service activities, commercial activities and rural development infrastructure. Moreover, the presentation per project component does not distinguish between investment and operation costs, and the commercial accounting system is ill-adapted for service activities which generate no revenue. 2.14 Under the project, RDC accounting would be reorganized in order to keep separate accounts for the different activities. Opening balance sheets would be prepared for activities which would eventually be transferred to the private sector or the specialized RDC branches (garage, construction, management of the coffee washing stations). Excessive cash-flow resulting from unused subsidies to the RDC would be returned to the Treasury. III. The Government's Atricultural Sector Policy A. General Description 3.01 To address structural issues, the Government requested, in late 1984, that the Bank and the IHF assist with the preparation of a comprehensive economic reform program. Supported by the First and Second IDA Structural Adjustment Credits (SAC I and SAC II), the Governments program includes a  - 15 - comprehensive package of ongoing measures to: (a) strengthen macroeconomic management; (b) create an incentive framework to stimulate exports and improve private sector confidence; (c) reform public enterprises; (d) improve public expenditures management; and new measures to: (e) increase the efficiency of the financial sector; (f) 14beralize the labor market; and (g) implement well- targeted measures aimed at alleviating poverty. 3.02 In the agricultural sector the Government intends to take measures to: (a) improve productivity levels (notably for foodcrops) particularly through increased utilization of fertilizers; (b) prepare pricing policies in line with the production and export objectives; (c) strengthen the efficiency of the coffee sector; (d) redefine the role of public institutions in the sector and more specifically restructuring of the RDCs; and (e) address the economic and financial difficulties of some agro-industrial projects. These principles are now further developed by the Agriculture and Livestock Sectoral Policy adopted by the Government in June 1988. Based on a realistic assessment of past experiences, the policy proposes major changes in the public expenditure planning and programming process, the role of public institutions, and an increased participation of the population in the decision-making process. The policy calls for strengthening the programing, coordinating and monitoring capability of public service together with a growing involvement of the private sector and cooperatives in commercial activities such as in input production and supply, produce processing and marketing. Production objectives will emphasize quality aspects and will take into account the specific diversity of ecological zones and farming conditions. 3.03 For cash crops, the Government plans to achieve its objective of a two third increase in coffee production through new planting only in areas with high potential, increased planting density, replacement of old coffee trees and improved cultivation practices. Coffee quality will continue to be promoted through construction of washing stations and reorganization of pricing and marketing mechanisms. This policy addresses the major constraints of the coffee sector and would be supported by a Coffee Export Crops project under preparation. Tea production will be developed through expansion of areas under cultivation and use of chemical fertilizers. 3.04 For fooderops, the GOB policy acknowledges that one of the main constraint is the lack of a well-organized market. In the short term priority will be given to increasing the nutritional value of production by focusing on cereals, legumes, fruits and vegetables instead of tubers. At the same time the Government will pursue its policy of non-intervention in agricultural prices and promotion of the private sector and cooperatives in credit, marketing, storage and processing. Regional specialization would progressively result from the development of marketing opportunities and not from bureaucratic planning. 3.05 Agricultural research and extension will be "demand' oriented and closely linked together. Research will be done in real-life environment and support farmers' own experimentation. The new policy emphasizes the need for a better dialogue between farmers and agricultural services staff who should be more attentive to farmers' needs and constraints.  - 16 - 3.06 Plant Protection and fertilization have been identified as key factors for Intensification. On fertilization, the Government's policy is to facilitate the involvement of the private sector in the marketing of fertilizer to satisfy present demand, to promote agriculture-livestock integration, and to launch a national research program to assess the opportunity of using local lime and phosphate deposits in order to adjust its import and supply policy. 3.07 The policy call for a progressive transfer of input production and marketing from Government services to the private sector and cooperatives together with a progressive suppression of subsidies. Agricultural credit will be done exclusively through banking institutions and particularly through Savings and Credit Cooperatives (COOPEC). 3.08 On the institutional side the Government's policy is to move away from area based projects to a more sectoral approach with better integration of central and local services. At the central level, the Government intends to strengthen the planning, budgeting and monitoring capacities of the Ministry of Agriculture and Livestock which will focus on production aspects. Land development and management through erosion control, reforestation, bottomland protection and development will be coordinated by a new Ministry, the Ministry for Land Development, Tourism and Environment. At the local level, the Government has decided to implement a reorganization of the RDCs along the conclusions of the RDC study (para. 2.12). The main features of the program are: (i) progressive transfer of the RDC's extension departments to MOAL's services; (ii) progressive transfer of input production and marketing to the private sector and cooperatives; and (iii) divestiture from RDCs of rural development activities which will be devolved to the relevant Ministries, with RDCs concentrating on the promotion of commercial activities. Government's policy on cooperatives 3.09 The Government intends to address the shortcoming of the cooperative movement (para. 1.18) through the following measures: (i) application of the new cooperative legislation in order to enable pre-cooperatives and cooperatives to be established, to develop and to operate exclusively under the control of their members and their freely elected or recruited representatives; (ii) rehabilitation and reorganization of existing cooperatives including dissolving groups and cooperatives not supported by members or economically not viable; (iii) reorganization of support services through better coordination of external aid; and (iv) expansion of the Savings and Credit Cooperatives (COOPECs). B. The Policy Component 3.10 The proposed operation would assist the Government in implementing the institutional dimension of its agricultural sector policy, the adjustment of the national input policy and the reorganization of the Buyenzi and Kirimiro RDCs, and the reform of the salary structure of MOAL's staff. Many of the activities supported by this operation constitute the sector implementation of broader policy principles, taking into account the sector specificity as well as the time dimension of the necessary transition from old  - 17 - to reformed concepts. This is especially true of the reform of MOAL's salary structure, which is part and parcel of the broader SAC-supported civil service reform. Adiustment of the National Agricultural Input Policy 3.11 Fertilizers. The GOB intend to eliminate all subsidies on fertilizers and other imported inputs sold through the official sector (Agronomy Department, RDCs and Projects). For fertilizers this would occur in three steps. The first step would be a 25 percent increase in 1989 over the current RDC selling price to farmets. This would cover the economic cost of fertilizer. The second step would be to include in 1990 a profit margin which would allow the participation of the private sector in wholesale marketing. The third step would be the suppression of all subsidies in 1991. The impact of price increase on farmers's demand and consequently on food security would be jointly reviewed by the Government and by IDA on an annual basis and adjustments, if necessary, will be agreed with IDA. The suppresion of fertilizer subsidies would effectively terminate artificial demand in areas where application is not technically feasible, redirect fertilizer to areas of demonstrated usefulness at prices lower than parallel market prices and facilitate private sector involvement. On the technical side, research will help develop fertilizer mixes better suited to soils where demand is currently artificially induced by subsidized prices. Full cost recovery resulting of the suppresion of current indirect subsidies (together with other policy measures unifyi.ng the tax and fiscal regime applied to public and private entities) is expected to: (i) permit the entry of private operators in the marketing of fertilizers; (ii) match supply and demand geographically; (iii) and result in price increase of about 35% (with tax exemption on inputs) to about 55% (with full taxation on inputs). Progressively, in line with improved capacity of the primary and secondary cooperatives in the area, the RDCa and the projects would pass the retail function of inputs to the cooperative and private sector, and wherever possible, wholesale and procurement functions as well. Assessments of the cooperatives' capacity would be undertaken and contractual arrangements made by the RDCs and the projects. These arrangements should provide for adequate retail margins permitting cooperatives to make reasonable profits and cover storage and marketing costs. The RDCs would continue to import fertilizers in bulk and act as wholesale suppliers in order to benefit from economy of scale. In order to allow fair competition in fertilizer imports and marketing, state organizations would be subject to the same tariff and tax policies as private traders. The national policy on fertilizer usage, import, and production will be coordinated by the national committee described in para. 5.14. The implementation of the first phase of the suppresion of subsidies on fertilizers would be a condition of first tranche release. 3.12 Seeds. The seed production and marketing system will be reorganized along the following principless focus on a limited number of strategic seeds for which results are available from research (rice, potatoes, maize, etc.); creation of a seed control and certification function outside of ISABU; introduction of a cost recovery system allowing for privatization of the last stages of seed multiplication and marketing (farmers groups or private entrepreneurs). The formulation by the Government of a national program for  - la - seed production and marketing acceptable to IDA would be a condition of second tranche release. 3.13 Phytosanitary Inputs. The usage of pesticides would be regulated by a pesticide regulatory scheme which would be prepared with the support of the project. Phytosanitary products for food crops would be sold at full cost recovery through the private sector and the cooperatives. The formulation by the Government of a national regulation on pesticide usage consistent with IDA's pesticide guidelines would be a condition of second tranche release. 3.14 To support the above readjustment of the GOB's agricultural input policy, the project would provide foreign exchange for agricultural sector inputs such as fertilizers, pesticides, veterinary products and agricultural tools and equipment. Reorganization of Buyenzi and Kirimiro RDCs 3.15 The Government would limit the role of Buyenzi and Kirimiro RDCs to one of promotion rather than implementation of commercial activities. This would constitute a pilot program, with the evolution of the two RDCs staged i.n two phases. During the first phase, the RDCs would reorganize their ictivities into autonomous units with separate accounts. At the same time they would study the feasibility of transforming their commercial activities into separate enterprises and would experiment with new programming and budgeting procedures for the services activities. The second phase would be the transfer of extension activities to MOAL's provincial services, and the implementation of the results of the above studies. The Government of Burundi intends to reorganize other RDCs along the same principles, as part of its new agricultural policy and in light of the experience gained with Buyenzi and Kirimiro. 3.16 Commercial Activities. Over the project period, Buyenzi and Kirimiro RDCs would transfer after study the following activities to the private sector and cooperatives: input production and marketing, garage operation, civil works construction, rural road construction and maintenance, and, possibly management of the coffee washing stations. (a) Input production and supply. Buyenzi and Kirimiro RDCs would apply the new national agricultural input policy (para. 3.11- 3.13) for production, procurement and distribution of inputs. In addition, the RDCs would take the following measures: (i) In order to promote the use of new inputs, mini-stocks for resale by cooperatives and traders would be held by selected cooperatives and private traders on consignment for the RDCs and provincial extension services. The marketing risk would thus be borne by the RDC. Once the existence of sufficient demand for a certain input would have been ascertained, the RDC would establish a "buffer stock' from which cooperatives and traders could buy at their own risk. Such buffer stocks already exist for fertilizers.  - 19 - (ii) RDCs and Provincial Services would not distribute any inputs on credit. Seasonal inputs twould be sold to farmers, during the coffee marketing season, against cash. For sprayers (food crops) and tools, farmers and groups of farmers would be expected to make credit arrangements, if required, through marketing cooperatives or through COOPECs. (iii) The cost accounting system would be changed in both RDCs to show clearly the cost of input distribution and its profitability. (b) Garage Operation. The reorganization of the RDCs' garages would be done in two stages. During the first year of the project, they would be operated as autonomous entities inside the RDC framework. The head of the garage would be accountable for general management. Accounting would continue to be done by the RDC's Financial and Administrative Unit but accounts would be kept independently and audited separately. Direct costs would not be eligible for IDA reimbursement. Garage income would come from direct billing of other RDC departments, services, and private clients. Assurance- were obtained at negotiations that a study on vehicle maintenance to assess the competitiveness of the garages be completed before April 1991 and will issue recommendations on the following alternatives: privatization, closing, or merging with the regional garage managed by the Ministry of Transport. (c) Civil works censtruction and road maintenance. RDCs' force account construction capabilities have been developed mainly for the construction of washing stations. Based on the existing accounting system, the construction cost of the coffee washing stations (28 million FBu) does not fully account for RDC overhead and technical assistance. The following changes are envisageds (i) separate accounting would be installed to gain a better knowledge of real construction costs; (ii) the autonomous civil works department would compete under national competitive bidding for infrastructure financed by the project and for the construction of coffee washing stations; and (iii) a study on the creation of separate companies, specialized in the construction and equipment of washing stations would be implemented as part of the preparation of the Coffee/Export crops project. In the cas- of Buyenzi RDC, the maintenance of the secondary roads networx would be eventually executed by private entrepreneurs under the supervision of the Ministry of Public Woi:ks. Agreement that this transfer would occur before December 1990 has been reached during negotiations. In the meantime, to facilitate monitoring and induce cost reduction, 3DC's civil work departments would be paid, as any other contractor, only on the basis of works actually completed. 3.17 Manazement of the Coffee Washint Stations. The management of the coffee washing stations would be transferred, over the first three years of the project, to one or several autonomous commercial companies, created around  - 20 - the existing RDC's coffee technology departments. The status of the companies would allow the participation of the private sector (including former RDC staff). Proposals on ownership of the washing stations, status and organization of the management companies would be developed under a study financed by the Third Technical Assistance Project and would be implemented under the Coffee/Export crops project. 3.18 Buyenzi Rice Mills. The presentation to IDA of an acceptable action plan for the reorganization of the management of the rice mills presently operated at loss by the Buyenzi RDC in Ngozi and Kirundo provinzes would be a condition of first tranche release. Assurances were obtained at negotiations that these mills would be sold to the private sector (if the study proves them profitable), before December 1991. 3.19 Promotion. At the end of the project the RDCs would basically become Promotion Units which, if necessary, would continue to act as a wholesale trader for imported inputs. Under a fee, the RDCs would also provide management and accounting assistance to small businesses taking over activities previously Implemented by them, such as vehicle maintenance and repairs, and civil works and provide management support services to other private entrepreneurs and cooperatives. These services would include: market studies, preparation of terms of reference for feasibility studies; counseling on import/export regulations. They would possibly become a partner of the Chamber of Commerce and Industry and get involved in the implementation of the artisanat promotion component of the Urban II Project recently approved by IDA9s Executive Directors. 3.20 Services Activities. The progressive transfer of RDCs' extension services to provincial services would be linked to strengthening MOAL's new General Directorate for Extension (para. 4.12), to avoid discontinuity in services delivery. An agreement has been reached that this shift would be completed by December 1992 after a joint evaluation in 1991. The administration of the extension staff would be transferred from the RDC to MOAL's provincial services during the first three years of the project, by a decision of the Minister of Agriculture and Livestock. However, extension staff will remain under RDC technical supervision until 1992. Assurances were obtained at negotiations that, in the seventeen additional communes taken over for three years by the Kirimiro RDC, existing and additional staff would remain under their present status. The transfer of administrative and financial responsibilities for all extension staff working in at least one province in each RDC would be a condition of second tranche release. Salary Ad1ustment 3.21 In order to attract and retain qualified staff in the reorganized agricultural services, it would be necessary to adjust the salary structure of the civil service which would be applied to RDC's staff transferred to MOAL. Assurances were obtained at negotiations that the Government will undertake a study on the salary structure for agricultural services' staff, and that the results of this study would be available by April 1990. The target salary could be close to the existing RDC salaries which do not appear excessive given the constraints of field work inherent to agricultural extension; nevertheless, under present conditions, an abrupt switch of extension staff  - 21 - from RDCs to the civil service would cause a significant salary reduction and may induce the departure of the best qualified staff. Starting differences between RDC and civil service salaries are 40 percent for communal extension officers (A2) and for field workers (A4), 35 percent for graduate staff (AO), and 20 percent for extension assistants (A3). Nominal RDC annual starting salaries range from 5000 Fbu (US$ 405) for a field extension worker, to 38,000 Fbu (US$ 2,430) for a graduate agronomist. The submission to IDA of terms of reference for the study on the salary policy of agricultural staff would be a condition of credit effectiveness. Starting the implementation of recommendations of the salary study will be a condition of second tranche release. 3.22 To retain qualified staff during the transition period, it is proposed that switched staff continue to receive their current salaries for no more than three years until a permanent solution is adopted. After that period the new salary policy would be applied. Transitional arrangements would also apply to the civil service extension staff working in the 17 communes in Muramvya, Karuzi and Gitega not presently covered by Kirimiro RDC. Submission to IDA of satisfactory 1989 and 1990 budgets for Buyenzi and Kirimiro RDCs would be a condition of first tranche release. The 1989 budgets have already been agreed with the Association. IV. TRE PROJECT A. Prolect Obiectives 4.01 The project would address two main goals of the GOB's new agricultural sector policy: improvement of cost-effectiveness of public expenditures in the agricultural sector and improvement of nutritional standards and incomes in rural areas. 4.02 The Project's direct objectives would be to: (a) develop MOAL's analytical and long term programming and budgeting capability, and sector management capacity; (b) design and establish a national extension system based on: (i) response to farmer's needs and constraints; (ii) time-bound work program, regular and continuous training, close linkages with research; and (iii) the development of technologies adapted to the various ecological and farming systems; (c) improve efficiency while reducing the financial costs of agricultural services through reorganization of Buyenzi and Kirimiro RDCs; (d) promote sustainable agricultural input delivery, food crop marketing and agricultural credit systems through support to the national agricultural input policy and promotion of the private sector and cooperativea; and  - 22 - (e) promote communal development and rural youth employment. B. General Descriition 4.03 The project would be a hybrid operation consisting of a policy component to support reform measures in the agricultural sector described in Chapter III and an investment component including: (a) Strenathenina of MOAL's central services through: (i) strengthening of MRAL's Planning Directorate; (ii) creation of a Financial and Administrative Unit and; (Mi) strengthening of the new General Directorate for Extension. (b) Strengthening of agricultural research through: (i) strengthen- ing the phytosanitary control service in ISABU; (ii) support to a National Fertilizer Research Program; (iii) preparation of a program to reorient agricultural research. (c) Reorganization and strengthening of reitonal agricultural services through: (i) reorganization and strengthening extension services in 5 provinces under Buyenzi and Kirimiro RDCs; (ii) carrying out, with the support of ISABU a program of adaptive and on-farm research in the five provinces; (iii) carrying out a staff training program; (iv) strengthening of livestock services in Buyenzi and Kirimiro; (v) land protection and development. td) Manatement of RDC reortanization through: (i) strengthening RDC promotion activities; (ii) monitoring and evaluation. (e) Promotion of Communal Development and of Rural Youth Employment through pilot programs in Ngozi and Muramvya provinces (f) Strenithening of the cooperative movement through: (i) support to MRDH's Cooperative Department in the promotion of an autonomous cooperative movement; (ii) support to Credit and Saving Cooperatives (COOPEC).  - 23 - C. Description of Prolect ComDonents 1.Strengthening of MOAL's Central Services 4.04 The proposed component would build on the achievements of the Second and Third Technical Assistance Projects and would address the organizational constraints which they encountered as follows. a) MOAL's Planning General Directorate 4.05 The capacity of the Studies and Programming Department would be strengthened to carry outs sector planning and definition of agricultural sector strategies; identification and preparation of sectoral program-budgets (P-B), in cooperation with MOAL's technical Departments and the Ministry of planning; preparation of TOR and supervision of feasibility studies; annual review of projects included in the Public Investment Program (PIP) and Public Expenditures Program (PEP) for the agricultural sector; and coordination of external donors and non-governmental organizations active in the sector. The support would includes (i) the appointment of two Agricultural Sector Planners; (ii) provision of 3 man-years of technical assistance in policy analysis and planning and 4 man-months of consulting services on sector and project analysis; (iii) development and implementation of a medium term program for sector studies and commodity studies (analyse de filieres) by the establishment of a study fund. 4.06 The Monitoring and Evaluation Service would be strengthened to carry out: technical monitoring of the PEP; elaboration of methods and modalities for monitoring and evaluation of projects and services; systematic project supervision; monitoring and evaluation of national. agricultural strategies and policies; and evaluation of completed projects and study of issues related to the post project period. The support would includes (i) appointment, training, and equipment of a Monitoring and Evaluation specialist; (ii) provision of 12 man-months of consultants in monitoring and evaluation; (iii) design and implementa-tion of a technical and financial monitoring and evaluation system; and (iv) development of an agricultural sector data bank. 4.07 The Management and Accounting Assistance Service would be strengthened to: promote the utilization of the agricultural sector accounting system; train accounting staff of the ministry's services and projects through seminars and on-the-job-training; and provide management and accounting assistance to projects, RDCs and Offices under MOAL's mandate. The project support would include: (i) appointment, training and equipment of a Management Advisor; (ii) provision of 3 man-years of technical assistance and 4 man- months of consultants in accounting and financial management; and (iii) project management and accountancy training. 4.08 The Education and Training Department would be strengthened to undertake: human resources programming for the agricultural sector; supervision of vocational training, through appointment training and equipment of a training coordinator. In addition, the technical assistance would organize: orientation sessions for newly graduated high level staff; and re- orientation training for reassigned staff. The orientationlre-orientation  - 24 - training sessions would extend over a six month period and would include short assignments in MOAL's department and selected projects together with tutorial provided by the two technical assistants (30 percent of their time) and 2 man- months of consultants. The project would also finance 30 in-country seminars, 15 overseas short term training course, and 20 study tours. 4.09 Documentation. MOAL's documentation would be organized through a parallel FAO project under preparation which would equip existing MOAL departments' informAtion centers and organize them into a coherent information network. 4.10 Land Tenure. The project would finance the feasibility study of a Cadaster project for two of the most densely populated communes in Buyenzi. The study would be implemented by MLDTE's Land Tenure and Rural Cadaster Department. b) MOAL's Financial and Administrative Unit 4.11 A Financial and Administrative Unit (FAU) would be created, attached to the Minister's office, to carry out the following functions: (i) preparation and financial monitoring of a Public Expenditures Programs for the agricultural sector, annual budget preparation and monitoring of budget commitments by MOAL's departments and parastatals; (ii) coordination of MOAL's annual budget preparation (central services, projects' counterpart funds, provincial services); (iii) decentralization of budget execution by introducing revolving funds at provincial level which would be replenished on a quarterly basis; this would enable provincial accountants to make payments for operating costs including incremental salaries and allowances in a timely manner thus avoiding current lengthy administrative procedures; and (iv) control of budget execution in cooperation with DGPA's Monitoring and Evaluation Service. This Unit would be staffed with a local experienced and qualified chief accounting officer, preferably seconded from the Ministry of Finance, assisted by two accountants (A2 level). Th project would finance staffing, equipment and operation of the unit. The creation of the Unit and the appointment of the chief accounting officer would be a condition of credit effectiveness. c) MOAL's General Directorate for Extension 4.12 An Extension Service Department has been established within the recently created MOAL's General Directorate for Extension with the following functions: (a) to strengthen coordination between Provincial Coordinations, projects and RDCs with regard to exchange of knowledge, information and problem solving; (b) to strengthen the links between extension and the country's main research organizations: ISABU and the Faculty of Agronomy of the University of Burundi (FACAGRO); (c) to ensure regular and continuous training and supervision of extension staff and (d) to promote community development. The two services of the department, extension and training, would be staffed each by a local technical specialist, on fixed term contract, whose terms of preference and contracts would be approved by IDA. The project would cover (a) incremental salaries, operating costs and equipment for the service; (b) 2.5 man year of technical assistance; (c) 14 months of consultation to support the farming system analysis (d) 5 months of consultation, from local NGOs, to adapt the extension system to respond to the  - 25 - specific problems of women farmers. The recruitment of the two local technical specialists and of the technical assistant, and the appointment of the Chief of the Extension Service and of the Training Service would be a condition of disbursement for the MOAL's Central Services and RDC's Agricultural Services components. 4.13 The Personnel and Budget Department would prepare and manage the budget for extension activities and would progressively administrate all extension staff presently working in projects on RDCs. It would also coordinate the management of leasing contracts for the renewal of motorcycles and bicycles of project staff by the provinces. Under these contracts, project staff would be granted a monthly transport allowance to cover the cost of maintenance, repair and gas to make installment payments of needed motorcycles and bicycles. The project would finance staffing, office equipment and operation of the Unit. 2. Strengthening of Agricultural Research 4.14 National Fertilizer Research Program (NFRP). The project would support the National Fertilizer Research Program (NFRP) whose main objectives would be to: (i) delineate the conditions that favor fertilizer use on fooderops cultivated on higher altitude soils, including fertilizer from indigenous resources; and (ii) identify fertilizer recommendations that take into account the diversity of soils and ecological conditions. On-farm tests would be implemented in four natural regions, Kirimiro, Buyenzi, Bututsi and Bweru. Special attention would be given to fertilizers produced from local resources, presently under trial by the International Fertilizer Development Center (IFDC) through a Fertilizer Action Plan implemented by the Ministry of Public Works, Energy and Mines, with the support of the World Bank. This program consists of the collection of 30 tons of natural phosphates from local resources, and the processing of limited quantities of various kind of fertilizers so that they can be extensively evaluated. The latter phase would be part of the NFRP. The project would finance laboratory and transportation equipment, research personnel in ISABU and FACAGRO, five years of an agro- pedologist expert for FACAGRO and operating cost for field tests in about 300 farms. 4.15 Phytosanitary Researc' Service. ISABU will strengthen its phytosanitary research service, to be staffed with 2 research specialists (one expatriate and one national), with qualifications and terms of reference including a focus on developing and promoting integrated pest management (IPM), and 15 phytopathology inspectors who would act as plant protection subject matter specialists, one for each province. The service activities would include: support to MOAL's Crop Protection Department in the development of a nationwide plant protection program, including national regulation on pesticide usage consistent with the requirements of IDA's pesticide guidelines (OPN 11.01); the strengthening of interaction among scientists, extension workers and farmers, including evaluation of the impact of pest control recommendations. The project would finance the research specialists and the salaries and operating costs of the provincial inspections. The adoption of a national regulation on pesticide usage acceptable to IDA would be a condition of second tranche release.  - 26 - 4.16 Reorftanization of Agricultural Research. The project would strengthen ISABU capability for monitoring and evaluating the experiment of a new organization of agricultural research: the Regional Interdisciplinary Research Workshops. The project would finance studies and consulting services. 3. Reoritanization and Strenathenint of RDC's Agricultural Services a) Provincial Agricultural Extension Services 4.17 Extension services, as they are currently operating in Buyenzi and Kirimiro RDCs, are already adhering to the three basic principles of the training and visit system: (a) establishing time-bound and well supervised work programs; (b) regular training of staff at all levels; and (c) linkages between Research and Extension. 4.18 However, there is a need to make changes in both content and organization to increase their efficiency. In short: (a) a better understanding and consideration of farmers' needs and problems including food security and the specific needs of women and of young farmers is necessary; (b) better backstopping and training of extension agents and zone officers through the appointment of Subject Matter Specialists (SMS) is required; (c) separation between services activities and commercial activities is urgently needed, extension agents would be relieved from their input distribution and credit duties; and (d) in order to improve coordination and research linkages, the responsibility for extension services would be transferred from the RDCs to the Provincial Coordinator of MOAL, starting in PY4 and cooperation with ISABU would be enhanced (paras. 4.23 and 5.11). 4.19 Essential for a better understanding of farmer practices and problems is the undertaking of 'farming system assessments". Under the project this will be initiated in groups of two to three communes per province. These would collect data on soil fertility, land tenure and usage, economic development, production and cultivation practices, food security, in order to come to an area zoning and a farm topology. This analysis would form the basis for assessment of farmers' constraints and objectives, identification, support and extension of farmers' promising cultivation practices, and design of an on-farm testing of new technologies. A similar approach has been successfully used by ISABU's Small Farming System project implemented with support of USAID in Karuzi Province and will be applied under the Muyinga project. 4.20 Strengthening of the extension service under the project would be achieved by: (a) introduction of farming system assessments; (b) expanding the new extension approach in 17 additional communes in Kirimiro region (Gitega, Muramviya, Karuzi provinces); (c) utilization of SMS through the recruitment of four SMS in Kirimiro region (two for Karuzi province and two for Muramvya province); and (d) cooperation with ISABU' Regional Research Units (para. 1.25). The project would finance the construction and equipment of 11 communal centers and the equipment and incremental operating costs of agricultural services staff in the 17 additional communes.  - 27 - b) Trainina 4.21 The project would support two different types of training activities: technical in-service training of agricultural services staff and more general training on economic and agricul%ural development for provincial and communal staff. Training would be held in the regional training centers built and equipped in Ngozi and Gitega by the Ngozi III and the Kirimiro projects respectively. The project would provide for the operating costs of the centers. The management of the centers would be transferred over three years from the RDC to MOAL's Extension Department. c) Adaptive Research 4.22 The basic structure for adaptive research has been largely established during the Kirimiro project. However it would take some time for the adaptive research program to produce results suitable for incorporation in extension messages and substanitial scope remains for improving the focus and relevance of adaptive research. 4.23 First, adaptive research activities in the five programs covered by the project would be integrated in the overall program of ISABU Regional Interdisciplinary Research Workshops under creation with the support of Belgian bilateral aid in Ngozi and of USAID in Gitega. Second, the coffee research program would be the responsibility of ISABU and all trials currently implemented by the RDC that have led to confusion and duplication would be terminated. Third, researchlextension/services linkages would be improved through the development of on-farm research which would be integrated in ISABU regional programs. On-farm research would include Researcher-Managed on-farm trials and would be used, eventually, to formulate location specific messages. The SMS would be accountable for a target, depending on circumstances, of about 10-15 key Researcher-Managed on-farm trials per season. These farms would be selected at the colline level among volunteers. Colline meetings would discuss the content of the trials. Extension agents would be involved in the supervision of Farmer-Managed on-farm trials. The project would finance the cost of adaptive research. Nine months of consulting services would be provided to design the program, liaise with ISABU and train local staff. Research/extension linkages would be reassessed by PY4 in the light of the experience with the Regional Interdisciplinary Research Workshops. d) Livestock Services 4.24 The project would strengthen livestock services in the Provinces of Muramvya, Karusi, Gitega, Ngozi, and Kayanza. In Muramvya province the project would complement the on-going Livestock project supported by French bilateral aid. The livestock services, already integrated in the Provincial Coordinations, would be re-oriented towards the public sector task of extension, prevention of the main epidemic diseases and sanitary control. Improved management and operational principles would be introduced to enhance the efficiency of the currently loosely organized extension staff. These principles would be in accordance with the T and V system. Wherever possible,  - 28 - livestock extension tasks would be integrated with the crop extension service to ensure a unified message at farm level. 4.25 The project would also support the establishment of herders association's pharmacies to facilitate the distribution, at full cost recovery, of drugs and other inputs that do not require the intervention of trained veterinary staff. The pharmacies would be formed exclusively on the basis of initial contributions of the members and thereafter from profit margins on the sale of drugs. The project would fund training for livestock technicians and herders associations, basic veterinarian tools, motorcycles on credit for livestock technicians and associated recurrent costs. During the first three years, the project would also finance prescription drugs out of a revolving fund. Assurances were obtained at negotiations that from January 1, 1992, in addition to Government budget allocations, non salary operating expenses of the livestock agents would be financed from the livestock services' margin on drug sales. e) Environment Protection 4.26 Forestry services in the RDCs would be returned to the Forestry Department which is assisted by the on-going Forestry Project II (Cr. 1620- BU). This would include existing rural forestry nurseries currently managed by the RDCs. 4.27 The project would support land protection in 5 provinces throught the definition of priority erosion control areas, the design of adapted techniques, and the financing of planting material for vegetative contour hedges at commune level for 3 consecutive years. 4.28 Bottom lands, swampy areas and grazing lands are part of the communal lands. Swamp development for rice, beans and sweet potatoes cultivation is supported by the UNDP financed/FAO executed pilot project covering the three provinces of Muyinga, Kirundo and Karuzi. The many swampy (generally peaty) valley bottoms in Kayanza and Ngozi province are part of a delicate ecological and hydrological system, which could be destroyed by unguided development by farmers and local authorities. Inadequate road crossings of these bottom lands which have been built in the past often lead to upstream water logging and excessive drainage and erosion downstream. In collaboration with ISABU and with the UNDP/FAO project, the RDC's rural works department is experimenting in providing protection of selected swamps where traditional cultivation methods are provoking excessive drainage. The project would finance the protection of 1,000 ha over a five year period in Kayanza and Ngozi provinces. Works would be executed by Buyenzi RDC during the first three years of the project, and by MLDTE's Rural Works Department thereafter. f) Management of Buvenzi and Kirimiro RDC Reorganization 4.29 The team in charge of the RDCs' reorganization would in each RDC, consist of the RDC director and three high level local specialists: a management specialist, a chief accountant, and a input promotion officer. This team would be assisted by a monitoring and evaluation unit and would recruit a management expert for 2 years. The technical assistant and the local specialist would be recruited with qualifications, terms and conditions  - 29 - acceptable to IDA. The operating costs of the managerial teams over five years would be supported by the project which would also provide for 33 man- months of specialized consultants for the two RDCs. 4. Promotion of Rural Youth Employment and Communal Development 4.30 Agreement was reached at negotiations to change the scope of the Marangara Commune Action Plan identified during IDA's mission of information and dialogue in October 1988 following the August tragic events. The rapid return of refugees has mobilized generous support from the international community and a special program financed through an IDA credit is no more necessary for the Marangara commune. However, the Government would like to address the issues identified by the program, at a more significant scale. The socio-economic integration of the rural youth and more specifically of the primary school leavers, and the relations between the communal administration and the population would be addressed, on a pilot basis, in two provinces instead of a single commune. a) Pilot Communal Development Program 4.31 The project would promote the involvement of the communal administration in programming and implementing agriculture and rural development programs, through the preparation of pilot communal development plans. As an administrative and social unit the commune would provide an adequate framework for inter-sectorial coordination. Other public services such as health and education would be given an opportunity to provide their input in the design of annual work plans for the extension servlces. In the context of GOB's recent reform of communal administration, the project would provide support to MOAL's Provincial Coordinators in the Ngozi and Muramvya provinces (audio-visual equipment, workshops, surveys, studies, and consultants). b) Promotion of Rural Youth Employment 4.32 The project would support a special initiative for the promotion of employment of rural youth with the technical support of a local or international NGO. This type of action has been identified by the project on the Social Dimension of Adjustment building on the experience of an Italian NGO in Karuzi Province. The proposed initiative would seize the opportunity offered by the reorganization of the two RDCs, in helping them to identify current RDC's activities which could be transferred to youth groups. Possible activities include: the production of forest and fruit tree seedlings in private nurseries, distribution of agricultural inputs, production of improved seeds under contract with the RDCs and eventu&lly with MOAL's Crop Production Department, operation of cereal mills and rice hulling machines, production of new export crops such as green beans, poultry, and road maintenance by labor-gangs. The initiative would focus on a pilot basis on Ngozi and Muramvya provinces. The project would support a three year contract with an NGO, a promotion fund, and a training fund.  - 30 - 5. Cooperative Development a) MRDH's Cooperative Department Reorganization 4.33 The proposed component would support the Implementation of the new cooperative development policy (para. 3.09) through the creation of a Cooperative Federation. For this purpose, a Cooperative Promotion Committee (CPC), composed of representatives of cooperatives, foreign donors and NGOs, and MRDH, would be created at the beginning of the project. The role of the CPC would be to translate the new cooperative development policy into operational programs, and coordinate the support and activities of the various donors agencies and Government services involved in cooperative development. It is expected that the Federation would be established and operational by the end of PY4. The CPC and eventually the Cooperative Federation would take over the following functions from MRDH's Cooperative Department: (i) support to cooperative management, including assistance in accountancy; (ii) training of cooperative staff; (iii) annual audit and regular supervision; (iv) coordination of external support to cooperatives. 4.34 The law on cooperative has been recently amended to reflect the new cooperative policy, and primary cooperatives and cooperative unions would be rehabilitated with the alm of strengthening viable units and liquidating cooperatives not supported by members or in a state of bankruptcy. 4.35 The project would provide 30 man-months of a cooperative management advisor to MRDH's Cooperative Department, office technology, and funds for training and studies. The cooperative management advisor would act as executive secretary of the CPC. The establishment of the CPC, including the appointment of the technical assistance on cooperative management to MRDH's Cooperative Department, and presentation to IDA of the new cooperative development policy would be a condition of disbursement for this component. The support would complement the assistance made available to the same department by the recently signed Muyinga Agricultural Development Project (Cr. 1857-BU). 4.36 The project would not finance cooperative investments in marketing facilities (storage and transport). Institutionally sound cooperative enterprises would be in a position to make adequate financial arrangements for investments and working capital with the local banking system. b) COOPEC Development 4.37 This component would provide additional support for the development of Savings and Credit cooperatives (COOPEC) by financing investment and initial operating costs for three years, of 40 additional COOPECs and two regional offices which would complete the coverage of the country. It would be implemented by the Central COOPEC Office with management assistance of the French "Centre International du Credit Mutuel"(CICH) under an agreement between French bilateral assistance and GOB. Parallel financing would be provided the French Bilateral Assistance andlor by the European Development Fund (EDF), to cover technical assistance costs. Signing of a cooperation agreement providing for the continuation of assistance by CICM to the Central COOPEC Office would be a ccd.ition of disbursement for this component.  - 31 - D. Prolect Costs Costs 4.38 Project incremental costs have been estimated at FBU 6,206 million or US$ 40.0 million of which FBU 4,538 million or USS 29.3 million represent foreign exchange costs. Base cost estimates reflect March 1987 prices updated to the negotiating date of February 1989. Project costs sumnarized in Table 2 include a quick disbursing component of FBU 1,442 million or US $9.3 million. Taxes have been estimated at FBU .4 million or US $ 1.0 million, about 3 percent of total project costs. Equipment imported for the project and expenditures related to technical assistance would be exempt from import duties and taxes, whereas taxes would be generated for work performed locally. The construction and civil works program is contained in the detailed cost tables in the Implementation Volume. 4.39 Physical contingencies varying from 10 to 15 percent have been applied to selected categories to reflect uncertainties regarding detailed quantities and possible design modifications. Price contingencies have been calculated for local and foreign exchange costs on the basis of projected inflation rates as shown below: Table 1 Price Contimencies Project Year 0 1 2 3 4 5 Calendar Year 1988 1989 1990 1991 1992 1993 -----------------------percent------------------- Local 6.00 5.00 4.5 4.0 3.50 3.50 Foreign 3.30 3.70 4.10 5.70 4.90 4.75  -32- OUNDI AGRICItLn1tA SERVICES SECTOR PROJECT MROJECT COST SUARY (FBW '00) (US '000) 2 Total 2 Foresn Pase Local Foreign Total Local Foreign Tota: Exchanae Costs =z==#= zzz=s=_:::z -===zz= zzs; z==3a- ==- s = ::-z zz =3 A. Hax CNTRAL SERVICES PLANNIING DEARTMENT ( DOPA ) 315.331.3 495,866.2 811,197.5 2.034.4 3.199.1 59233.5 61 15 FINAUCIAL AND ANItNISTRATIVE tWIT 28,471.4 11t027.8 39Y499.2 183.7 71.1 254.8 28 1 NATIONL XENSION UNIT 669738.6 283,145.8 349t884.4 430.6 1.826.7 2.257.3 It 6 Sub-Total 110 CENT. SERVICES 410,541.3 790,039.8 1.200.591.1 2,648.7 5.097.0 7,745.7 66 22 P. REGIONAL AGRICULTURAL SERVICES 1. KIRIlIIRO RUC PROMOTIN 1 M1N. AND EVA 102,226.9 185,264.3 287,491.2 659.5 1.195.3 1,854.8 64 5 EITSION SERVICES 160,010.1 233.939.3 393.849.3 1.032.3 1,508.6 2,541.0 59 7 TRAINLIN 289363.8 28,l43.2 56,507.0 183.0 41i.6 364.6 50 1 ADAPTIVE RESEARCH 23M724.2 24717.4 489441.5 153.1 159.5 312.5 51 1 LVESTO 2.005.5 3&628.2 5.633.7 12.9 23.4 36.3 64 0 ENVIRMWT PROTECTIOIIN 11*088.6 25,268.1 36,35b.7 71.5 163.0 234.6 70 1 5th-Total KRIRIIRODC 327o419.0 5900860.4 8289279*4 2.112.4 3,231.4 5.343.7 60 15 2. SUMZI RDC PROMTON P ONIT. AND EIAL 1029360.4 190,200.5 m560.9 660.4 1,227.1 1,897.5 65 5 EXENSION SERVICES 20,177.9 5294.6 72,7m.6 130.2 339.3 469.5 72 1 TRAINING 25,668.6 25,143.9 50,a12.5 165.6 162.2 327.8 49 1 ADAPTMVE RESEARCH 17,503.8 14083.7 31.587.6 112.9 90.9 203.8 45 1 TOCK 1,960.7 3,547.3 5,508.0 12.6 22.9 35.5 64 0 ENVIRONMENT PROTECTION 56,366.8 128,446,2 18413.0 363.7 828.7 1,192.3 70 3 qub-Total 8WENZI RDC 224,038.4 4144016.2 638,054.6 1,s445.4 2,671.1 4,116.5 65 12 3. RURAL YOUTH FROGRAM 47,297.6 V87466.5 134,7641 305.1 564.3 869.4 65 2 4. CwAL DEEPENT 46,5.W7 86,656.6 133,516.3 302.3 559.1 861.4 65 2 ft-Total REUM. ARiiLt SERVCES 64S,614.6 1w89.ms 1,734,614.4 4,165.3 7tM5.8 11,191.1 63 32 C. RESEARCH 1. FERTILIZER RESEAR TISBU 104,641.5 99,978.1 204,519.6 675.1 644.4 1,319.5 49 4 FA6RO 38,663.1 145,664.7 184,327.7 249.4 939.8 1,189.2 79 3 5th-Total FERTIER RESEA 143,304.6 245s.42.9 3a8847.3 924.5 1,584.1 2.508.7 63 7 2. PHTTOSAITART IN OECTIONS 77923.1 64,971.7 142894.8 502.7 419.2 921.9 45 3 3. RESEoa RE8NIZATIN 8,758.8 16,197.5 24,956.3 56.5 104.5 161.0 65 0 Ur-Tatal RESEARO 229,986.5 326h711.9 556,698.5 1,483.8 2,107.8 3,591.6 59 to 0. OWERATIVE DEVELOPENT NOR CETIWE lEPRMNT 60,826.8 207,390.1 268,216.9 392.4 1,338.0 1,730,4 7 5 ] COEC E81457.1 178,935.1 260r392.2 525.5 11154.4 1,679.9 69 5 5t-Total CPATIVE DEVELOPMNT 142t293.8 386,325.2 529,609.1 919n0 29492.4 3,410.4 73 10 E. SIPORT TO ADJOSTIENT AERICOLTUIIA DPIJS - 1,441500.0 14415s000 - 9,300.0 9,300.0 100 26 |SuieTotl SMMPRT TO ADWUSMT - 1441,500.0 19441500.0 9,300.0 9,300.0 100 26 To4I SASELINE COSTS 1,428,426.3 4,033,576.7 5462,003.0 97215.7 26,023.1 35,238.7 74 100 Physical Coti twetel,s 1004328.1 186,807.5 287,135.6 647.3 1,205.2 1,852.S 65 5 Price CntUlimncil 139r388.8 317,405.2 456794.0 ff9.3 2,047.8 2,947.1 69 8 Tobl PIO= COS 196684143.1 4537,799.5 6.205v932.6 10,762.2 29,276.1 40,038.3 73 114 sa=mm ,23in . m 228 3C2 =2 . O' '-ich taxes 182,296.8 -. 182,296.8 1,176.1 - 1,176.1 - 32  - 33 - E. FinancinR 4.40 The financing plan of project costs is summarized in Table 3. Table 3 Financtnt Plan Million FBu Million US S percent of Total IDA 5,134 33.1 83 Government of Burundi 833 5.4 13 French Assistance/ EDF 69 0.4 1 Belgian Assistance 127 .8 2 COOPEC 43 0.3 1 Total 6,206 40.0 100 4.41 The Government would finance 13.4 percent of total project costs equivalent to 13.5 percent of project costs net of taxes, or 18 percent of the costs of the investment part of the project. About 19.3 percent of the Government's contribution would be applied against the cost of incremental salaries and indemnities of Government staff in the five provinces and in central services of MOAL and MRD. In addition to its share of project costs, the Government would also finance the current operating costs of agricultural services in the five provinces covered by the pro,ect. An agreement has been reached at negotiations that Government financing or the cost of salaries of existing staff in the seventeen new communes covered by Kirimiro RDC would continue to oe funded through the Government's budget. 4.42 The IDA credit would finance 82.7 percent of total cost. Financing would include (net of taxes): project costs related to construction and swamp protection infrastructure, equipment, vehicles, technical assistance except for COOPEC and for the Fertilizer Research components, training, research and studies, and part of the operating costs. IDA would also finance 100 percent of the quick disbursing component. The donors would finance all technical assistance for the COOPEC and for the Fertilizer Research components. The COOPECs would finance progressively their operating expenses.  - 34 - F. Procurement Procurement arrangements are summarized in the table below: Procurement Method Total Project Element ICB LCB Other N.A. Cost (IDA) -